The EU has become a key trading partner of the Asia-Pacific region, but it struggles to turn this economic leverage into political clout. Like never before in history, European and Asian economies have become intertwined over the last decade. In 2007, Asian member countries of ASEM (Asia-Europe Meeting) accounted for 32% of EU exports and absorbed 18% of European exports, according to Eurostat. While products ‘Made in China’ have been flooding shops on the Old Continent over the last decade, consumers in emerging Asia are increasingly attracted to expensive European items. The EU’s large firms as well as many SMEs are seizing new business opportunities in the fastest growing economic region in the world. Still, many European citizens and workers perceive Asia rather as a threat than an opportunity. Transforming its growing economic presence in Asia into tangible political influence remains a key challenge for EU policy makers for the next decade.

SUCCESS STORIES

Contrary to widespread belief, ‘Europe Inc’ is doing well in Asia and has been expanding its positions and market shares over the last decade. During that period, the EU has overtaken the US in terms of trade volume and investment in most countries of the Asia-Pacific region. Europe has become the first trading partner of Beijing and elsewhere it is usually ranked number two, behind China. When it comes to investment, the EU is often the first source of foreign capital, like in South Korea. This ‘surge’ is explained by two factors, according to Park Sung-Hoon, professor of economics at Korea University. First, the 2004 and 2007 enlargements of the EU, which have mechanically increased the size of the EU economy. Secondly, a strategy of diversification of exports destinations followed by many Asian countries that have tried to reduce their reliance on the US market.

However, the competitiveness and high quality of European products is also a key rationale behind this success story. Europe is synonymous with high standards for Asian firms and consumers. Contrary to the US, the EU has kept a strong industrial base and is still a leader in several sectors, such as machinery or chemicals. In order to catch up with the developed world, Asian firms have been eager to equip their factories with the most advanced European machinery, although they often negotiate important transfers of technology. For example, Korea Aerospace Industries is currently developing a military transport helicopter in joint venture with the French subsidiary of EADS, Eurocopter. Both companies hope to jointly sell the helicopter on the global market from 2012 onwards.

Meanwhile, the newly enriched Asian consumers are keen to buy European items, which they see as trendy and fashionable. French and Italian luxury brands are expanding aggressively their operations in the region despite the economic downturn and the numerous cases of piracy and counterfeiting. Driving a German car is the best way to assert your economic success in the streets of Seoul, where featuring the EU flag on the car plate is seen as ultimate ‘chic’. Although Hollywood dominates the international movie market, Europe has a competitive advantage when it comes to culture, tourism and food, which play an essential role in Asian cultures.

RIVALRY

However, despite these numerous success stories, and being the wealthiest market in the world, the EU struggles to increase its leverage over Asian governments when it comes to tackling non-tariff trade barriers or other discrimination. Despite having an integrated trade policy pursued by the Commission, Europe is often thought of as divided in Asia. Member states compete with each other, pushing their own national business interests first. This happens at the expense of a strong European leverage, complains the Commission. Rivalries between EU chambers of commerce and national chambers of commerce are another symbol of Europe’s fragile unity in the field of business. Hence, in South Korea, a key national chamber of commerce claims it was not consulted by the Commission before the launch of the free trade agreement negotiations with Seoul. This situation allows the most powerful and skilful Asian governments, such as that of China, to pursue an effective divide and rule strategy against the EU.

Each member state naturally stresses its specificity in order to win contracts, investment and eventually jobs, instead of promoting Europe as a whole. Most Asian business people think first of Germany, the UK or France rather than the EU. “The single market is not completed yet. When it comes to the critical field of investment promotion, the national channel prevails in Asia,” Yeo Lay Hwee, director of the EU Centre in Singapore, told Europolitics.

The lack of political unity is the weakest point of the EU in a region where regional integration remains very low and national sovereignty is still the golden rule. Governments struggle to understand the EU’s policy making and are confused by the number of European interlocutors they have to face. This factor increases further the gap between the EU and the US in the region. Washington is capable of defending both its political and business interests in a centralised manner. Moreover, the key role America plays in Asian security provides an immense advantage when it comes to pushing the interests of its firms. This explains why Beijing accepted to hold a high level economic dialogue with the US well before the EU, although the latter is a bigger economic partner.

Pressure is thus mounting on EU leaders, who are threatened by an Asian political backlash at home. While large European firms are making hefty profits in booming Asia, a majority of citizens believes that the emergence of China is putting their jobs at risk. They are urging policy makers to take a tougher line against emerging Asia, stressing the lack of protection of the EU market. Meanwhile, China’s new assertiveness increasingly frustrates the Commission and its services, including DG Trade, which have engaged in a major rethink of their policy of openness. Having given up its dream of forging a special partnership with Beijing, the Commission is now ready play tough. But its efforts are likely to be curtailed by the division among member states, which have too many business interests at stake in China to seriously antagonise the leadership in Beijing.

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Most Asian business people think first of Germany, the UK or France rather than the EU